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Stock market investing can be the single most useful skill you can learn for taking control of your financial life. The fact that you are reading this, you are already one step ahead of thousands of others who haven’t even considered the possibility of making more money from their money. You have now set yourself on the long path of learning the investment game. To learn the best stock market strategies and the best ways to make great returns with the least amount of risk. 

But first you need to know, what actually is the stock market? And how can you get started?

What’s a Stock?

A stock is a public company which trades on the stock market (like a supermarket but for companies rather than baked beans). These stocks are made up of shares in which anyone can buy, to effectively own a piece of that company. Being a shareholder means you will make capital gains when the company increases in value. You will also receive income if a company pays out some of its profits known as dividends.

Stock markets occur within each country’s stock exchange. For the UK, this is the London Stock Exchange (LSE). Where 100’s of the UK’s largest companies’ shares are bought and sold on a daily basis. Here, most of the UK’s largest companies (Tesco, BP, Vodafone, Aviva) offer shares of their company which are bought and sold by investors. 

The FTSE 100 index, is a combination the largest 100 public UK companies trading on the LSE. The FTSE 100 is often looked at for a general perspective to see how well UK businesses have performed each day. These companies are much larger, well established investments and are unlikely to disappear when financial pressures hit. Looking at these companies can be a great place to start for beginner investors in the UK. Although they are likely to give you lower returns in general, investing in one of these companies is less likely to lose you a lot of money if you make a mistake.

It is important to note, the LSE also includes other indexes such as the FTSE 250 (the UK’s next 250 largest companies) and the FTSE small cap (even smaller market cap companies). The smaller the size of the stock, the more volatile they may be. This is because a large sale or buy session of the stock will be of a more significant percentage to the overall company’s capital.

Although there are many great companies in these indexes, for beginners, it would be much safer to focus your investments on the FTSE 100 (or the FTSE 250 if you’re brave) due to the increased stability. The fact that these companies are much larger means public knowledge of these companies will likely be greater, meaning you may already know what many of these companies do and how they make a profit.

What causes volatility?

As with the price for most things, the price of buying shares is dictated by supply and demand. Basically, if lots of investors rush in to buy shares of a company, the price will go up. If investors become less confident about the future of a company and sell, the price will go down.

Regular ups and downs in the stock market happen for many reasons (and sometimes for no reason). Scenarios in the news may occur causing many people to be afraid for the future of their company. Often causing a massive sell off. Or the opposite could just as easily happen. This is normal. When investing, it is important to realise this in order to be able to ride through this volatility.

To overcome volatility, once you buy a stock, you should aim to hold for at least 5 years. However, this is not to say you can’t sell if something changes with the company that you dislike. Or if the stock price surged and is now of an overly expensive price.

The intention to hold for at least 5 years will see that you don’t worry about short-term drops in the market. If you choose a good company, the likeness is that the price will increase above and beyond what it once was when conditions improve. Sometimes, you just need to be patient. There’s nothing worse than to sell a stock early to see its price increase rapidly a few months later!!

The different strategies…

There are many ways to invest in the stock market. However, for now I will place them into 2 separate categories. There is stock trading, where stocks are bought and typically sold within 1-2 days for lots of small profits. Then there’s long-term investing, where stocks are aimed to be held for 5+ years for a much larger profit. 

Due to the aforementioned unpredictable risk of short-term volatility, I hugely favour the long-term strategy; particularly for beginners. Short-term trading can be risky as volatility is controlled by human emotions, which is super hard to predict. It can be very difficult to know which way the stock market will go on a day to day basis. 

Long-term stock market investing is the main strategy taught on this website. Although for the sake of completeness, I do plan to cover short-term trading strategies too. Furthermore, I will point you in the right direction for great further learning opportunities for each strategy. So stay tuned with moneyyourconcern.com to learn more about both.

How do I get started?

The stock market can be tricky to get to grips with at first. Spending plenty of time learning and researching before getting started is highly important. As well as this website, there are many other great websites, books, courses and videos out there which I can point you in the right direction to. Although taking action is the best way to learn, it is of paramount importance to have basic fundamental knowledge beforehand. This is to limit your risk of loss and better your chances of gains.

If you feel ready to start buying stocks and shares, you can look to signing up your first brokerage account. Personally, I use Hargreaves Lansdown due to their trustworthiness and variety of services they provide.

Thanks for reading. Talk soon.

Harry